Refit dispute brings mixed result for Owners
In the recent (July 2016) judgment handed down in the High Court case of Saga Cruises and another v Fincantieri SPA, several provisions commonly found in refit agreements come under the spotlight, including a provision dealing with liquidated damages for late redelivery.
The case concerns the refit of the 1981-built cruise ship “SAGA SAPPHIRE” (formerly the “BLEU DE FRANCE”). A refit agreement was entered into between Saga and Fincantieri for a price of approximately €14,000,000, with works scheduled to start in November 2011 and to be completed by 17 February 2012.
Redelivery of the vessel was delayed until 16 March 2012 and shortly afterwards on her inaugural cruise under the bareboat charterers Acromas, the Vessel suffered a serious failure of the port main engine luboil cooler. This led to the abandonment of the inaugural cruise and the cancellation of the rearranged itinerary. Acromas, as assignee of Saga’s rights under the refit agreement, claimed damages in the amount of approximately £3,000,000 and liquidated damages for late redelivery.
The scope of the Yard’s duties came under scrutiny by the Court. The Owners claimed that the Yard undertook to “recondition and overhaul” the luboil coolers during the refit. The Yard contended that its obligations were limited to “cleaning by chemical and pressure test for checking leakages”, with any retubing to be quoted separately if it was required. As it turned out, the defective luboil cooler had indeed required retubing.
The Approved Judgment contains a detailed summary of the arguments made by each party which in the interests of brevity are not set out in any significant detail in this article. Suffice to say, the Court found that the luboil failure was indeed the cause of the abandonment of the inaugural cruise and the cancellation of the rearranged itinerary, however this did not mean that the Yard was responsible for the losses caused by that failure.
The Court found that, on a true construction of the contract, the Yard owed the Owners a duty of care to use reasonable skill and care in cleaning the luboil coolers and a duty to report to the Owners on the condition of the coolers to enable the Owners to reach an informed decision on whether retubing was necessary. But the Yard was not obligated to perform such retubing. The Court found that, while the Yard did breach the aforementioned duties, these breaches did not cause the Owner’s loss. A proper compliance with the duty to clean would not on the balance of probabilities have revealed the need for retubing and there was no evidence that the Yard should have been aware of and informed the Owners of anything which the Owners did not themselves observe.
The Owners were more successful in their claim for liquidated damages for late redelivery. The Yard tried unsuccessfully to rely on delays for which the Owners were responsible to ‘stop the clock’ in respect of its own liability for liquidated damages, and the court found for the Owners in the amount of €770,000 by way of liquidated damages for late redelivery.
This case is a salutary reminder of the need to ensure precision in drafting contract terms for complex tasks such as the refit of a vessel. This extends beyond the main body of the contract and into the schedules, where the specifications for the contracted works will invariably appear. If the expectation is that equipment shall be refurbished or replaced as opposed to merely inspected and/or cleaned, then the specification should say so and this should be reflected in any definition of the contract “Works”.
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